Abstract
Household credit, especially for mortgages, has doubled over the past years in the new European Union member countries, raising concerns about the economic and social consequences of household indebtedness in the event of a macroeconomic crisis. Using household survey data for 2005, 2006, and 2007 for both old and new European Union members, this paper assesses the determinants of access to mortgage finance. It also examines whether mortgage holders were more likely to suffer financial distress compared with non-mortgage holders in the period before the global financial crisis. The analysis does not find any systematic evidence that mortgage holders are financially more vulnerable than renters or outright owners; in fact, the incidence of financial vulnerability generally fell between 2005 and 2007, possibly reflecting the strong income growth experienced by these countries over this period. In addition, although tenure status is more difficult to explain in the new European Union member countries, the analysis finds that many of the same drivers of tenure status in the older member countries generally drive tenure status in the newer member countries as well. Finally, there is no evidence that access to mortgage credit is based on expected income in the old or in the new European Union member countries.
Highlights
Household indebtedness has grown rapidly in recent years in a number of countries in Central and Eastern Europe and the Baltic region, especially in many of the new European Union (EU) member countries
To explore the relationship between household characteristics, mortgage holdings and financial vulnerability, we utilize information from the databases of the EU-Statistics on Income and Living Conditions (EU-SILC), an annual, EU-wide household survey anchored in the European Statistical System
When considering the relationship between mortgage holdings and financial burden and vulnerability over time, comparing results in Tables 6 and Appendix Tables A9 and A10, we find, that if there has been any trend within the group of new EU countries, there has been a decrease in financial vulnerability, i.e. in the likelihood of incurring arrears, for mortgage holders, between 2005 and 2007, both in the statistical as in the economic sense
Summary
Household indebtedness has grown rapidly in recent years in a number of countries in Central and Eastern Europe and the Baltic region, especially in many of the new European Union (EU) member countries. We use aggregate lending data across European countries to document recent trends and data from the EUStatistics on Income and Living Conditions (EU-SILC) to explore benefits and costs of mortgage holding on the household level across countries. To explore the relationship between household characteristics, mortgage holdings and financial vulnerability, we utilize information from the databases of the EU-Statistics on Income and Living Conditions (EU-SILC), an annual, EU-wide household survey anchored in the European Statistical System. This survey is conducted by national statistical offices and has a cross-sectional as well as a longitudinal dimension, i.e., sub-samples of households are surveyed over several years. They do provide a useful statistical portrait of the distribution of household debt (see, e.g., NBS 2006 and Beer and Schurz 2007)
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